9911796707
TMI Blog2012 (7) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... 07/2007 UDS 14,78,691 6,47,66,697 Total 14,49,30,678/- 4. The Assessing Officer observed that the assessee company has made these remittances without deduction of tax at source as per provision of sec. 195(1) read with sec. 9(i)(vii) of the Income-tax Act. Therefore, he initiated proceedings on 31.3.2008 by issuing a notice u/s 201(1). The assessee's representatives appeared and submitted that the assessee being manufacturer of garments, especially jeans, had to import fabrics and accessories from other countries and mostly from Europe and for this purpose, the assessee company had engaged M/s SEL, Hongkong to render various services at the time of imports, such as inspection of fabrics, timely dispatch of material etc. and for these services, the assessee company had to pay 12.5% of imported value as charges to the non- resident company. It was also submitted that the choices of fabrics and accessories to be used for the production of final products are done by the assessee company jointly by discussion and consultation with its buyers and in most of the cases buyers have tie-up with international manufacturers of denim fabrics from whom the fabric is imported by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these observations, the AO held that the charges paid to the non-resident company are nothing but fees for technical services (FTS) as defined in explanation 2 to sec. 9(1)(vii) of the Income-tax Act. He thus, held that the assessee ought to have deducted tax at source @ 10% as per the sec. 115A(1)(b)(BB) read with sec. 115A(3) of the Income-tax Act and since the assessee has failed to do so, the assessee company is to be considered as defaulter u/s 201(1) and also liable to pay interest u/s 201(1A) of the Income-tax Act from the date of credit made to the account of the non-resident in the books of the assessee. He accordingly treated the assessee, as 'an assessee in defaulter' u/s 201(1) and also charged interest u/s 201(1A) of the Income-tax Act. 7. Aggrieved, the assessee preferred an appeal before the CIT(A) reiterating the submissions made before the AO. 8. The CIT(A) after considering the assessee's submissions also called for the correspondence between the assessee and M/s SEL and also the other buyers to understand the nature of transactions. The assessee produced the email correspondence between the assessee M/s SEL and various suppliers of denim. After considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and M/s SEL as regards the quality and quantity or prices of the material to be shipped and, therefore, no consultancy services are being rendered. Thereafter, he tried to demonstrate before us that the observation of the AO, that the non-resident company is rendering services for which 'fees for technical services' is paid is incorrect, he has drawn our attention to CBDT Circular No.23 dated 23.7.1969, where at para 4, it is mentioned that where the foreign agent of an Indian exporter operates in his own country and no part his income arises in India and his commission is usually remitted directly to him and is, therefore, not received by him or on his behalf in India, such an agent is not liable to Income-tax in India on the commission. He also drew our attention to Circular No.786 of 2000, wherein it has been explained that "the deduction of tax at source u/s 195 would arise if the payment of commission to the non-resident agent is chargeable to tax in India. In this regard attention to CBDT Circular No.23 dated 23.7.1969 is drawn, where the taxability of foreign agent of Indian exporters was considered along with certain other specific situations. It had been clarified th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia and in such cases, the provision of sec. 195(1) is not applicable. He has tried to distinguish the decisions relied upon by the AO. He submitted that the decisions of Authority for Advance Ruling in the following cases were relied upon by the AO. (He submitted that the facts in these cases are distinguishable from the facts of the case before us). (1) M/s Wallace Pharmaceuticals Pvt. Ltd., 278 ITR 97 (2) Rajiv Malhotra v. CIT 284 ITR 564 (3) S.A.R.I v. DIT 288 ITR 534. 13. He submitted that in all the above cases either the source of income was in India or the activities of non-resident company were carried out in India. He submitted that the decision of the AAR is applicable only to applicant before the AAR and Department and not to any other assessee as provided u/s 245 of the Income-tax Act. 14. The learned DR on the other hand supported the orders of the authorities below and submitted that both AO as well as CIT(A) have clearly brought out how the services rendered by M/s Sharp Eagle International (SEL) were in the nature of managerial, technical and consultancy services. 15. Having heard both the parties and having considered their rival contentions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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